BONDED BUILDERS HOME WARRANTY ASSOCIATION OF TEXAS, INC. D/B/A Bonded Builders Warranty Group, Appellant v. James B. SMITH and Michelle Eyrich, Appellees
2016 Tex. App. LEXIS 4217
| Tex. App. | 2016Background
- In April 2013 Smith and Eyrich purchased a home and received an express limited warranty from Bonded Builders Warranty Group (BBWG). Several months later they discovered foundation/other defects and sued the builder and BBWG; they alleged breach of the warranty and sought statutory remedies including attorney’s fees under Tex. Civ. Prac. & Rem. Code § 38.001 and DTPA claims.
- BBWG moved to compel arbitration under the Warranty’s arbitration provision, which: (a) requires binding arbitration of disputes not resolved by ADR, (b) allows the homeowner to choose an arbitration company from a list BBWG will provide when arbitration is requested, (c) applies the chosen company’s rules/costs, and (d) contains a severability clause; the Warranty also includes separate “General Conditions” limiting remedies and forbidding attorney’s fees/costs.
- The trial court denied BBWG’s motion to compel arbitration, finding the arbitration clause unconscionable and expressing concern about potential arbitration costs and BBWG’s control over the arbitration-selection process.
- BBWG appealed interlocutorily; the Court of Appeals reviewed de novo whether a valid arbitration agreement exists and whether it is unconscionable.
- The appellate court concluded (a) the Warranty contains a valid, enforceable agreement to arbitrate disputes; (b) appellants failed to prove the arbitration forum was shown to be biased or prohibitively expensive by specific evidence (speculation is insufficient); but (c) provisions attempting to eliminate statutory recovery of attorney’s fees were invalid and must be severed.
- The court reversed the trial court’s denial of the motion to compel, ordered severance of the attorney-fee waiver portion of the arbitration clause, granted BBWG’s motion to compel arbitration, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a valid agreement to arbitrate exists | Warranty is vague/omits essential terms (no identified arbitrator, rules, costs) and BBWG controls selection | Warranty plainly provides method: BBWG will supply list of approved arbitration companies and chosen company’s rules apply; agreement shows intent to arbitrate | Valid arbitration agreement exists; missing specifics are not fatal and court may appoint arbitrator if needed |
| Whether BBWG’s selection procedure creates impermissible bias | Giving BBWG control over the approved arbitration companies/selection will produce a nonneutral forum | Homeowners choose the arbitration company from BBWG’s list; no evidence of actual bias or of any provided list—speculative | No unconscionability shown on bias ground; speculation insufficient without specific proof of forum inadequacy |
| Whether arbitration costs are prohibitive | Trial court suggested AAA fees could be very high and effectively bar vindication of rights | No specific evidence of actual excessive fees for these parties; plaintiffs have not shown likely charged fees | Costs claim fails: must show specific evidence of likely excessive arbitration fees; speculation insufficient |
| Whether the arbitration clause’s waiver of statutory remedies (attorney’s fees) is enforceable | Clause and related General Conditions eliminate statutory recovery (DTPA, §38.001) and are unconscionable | Challenges to statutory remedy limitations are defenses to the broader contract and should be for arbitrator; clause has severability provision so invalid parts can be excised | Provisions purporting to eliminate statutory recovery of attorney’s fees are invalid and severable; court ordered severance and enforcement of remaining arbitration clause |
Key Cases Cited
- In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883 (Tex. 2010) (state contract law governs enforceability of arbitration clauses; courts assess whether arbitral forum permits effective vindication of rights)
- Venture Cotton Coop. v. Freeman, 435 S.W.3d 222 (Tex. 2014) (party alleging arbitration forum is inadequate must present specific proof; unconscionable DTPA waiver is invalid)
- In re Poly-Am., L.P., 262 S.W.3d 337 (Tex. 2008) (illegal or unconscionable contract provisions may be severed if not essential to agreement’s purpose)
- In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009) (standard of review for orders denying motions to compel arbitration)
- J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (party seeking to compel arbitration must first establish existence of a valid arbitration agreement)
- Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79 (U.S. 2000) (excessive arbitration costs can make arbitration unavailable and render clause unenforceable, but claimant must show likely costs)